Oil Shock Sparks Gold-Silver Divergence Amid Rising Yields and Hawkish Fed Expectations
The global market is experiencing a shockwave due to the rising tensions in the Middle East. The recent surge in oil prices has pushed Treasury yields higher, causing concerns about inflation and monetary policy. As a result, gold and silver are under pressure, with gold holding up relatively better than silver.
Oil prices have reached a four-month high, with Brent crude at $109.97 and WTI at $104.32. The Strait of Hormuz is still a point of concern, but the Bab el-Mandeb, a southern gateway to the Red Sea, has also been brought into focus due to Houthi militant attacks on Yemen's port of Mocha.
Helima Croft, Head of Global Commodity Strategy at RBC Capital Markets, warned that maritime traffic through Bab el-Mandeb is 'gravely imperiled' and predicted Brent could reach $121.99 later this year if a full-scale Saudi-Houthi war resumes. Tony Sycamore, an IG market analyst, sees the possibility of WTI retesting its March high around $119.48.
The increased oil prices are driving up Treasury yields, with the 10-year US Treasury yield reaching 4.970% and the 30-year at 5.380%. Fed pricing has also moved in response, with markets assigning a 72.4% probability to a 25bp hike at the September 16 meeting.
Silver is facing an additional vulnerability due to its industrial character, making it more exposed to higher inflation and weaker risk sentiment. The Gold/Silver ratio has broken above its downtrend, indicating a potential shift towards further Silver underperformance.